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NV panel rules Krch Realty violated law in short sales

UPDATE, May 7: With the hearings wrapping up Wednesday, the remaining complaints for real estate professionals including Marshall Carrasco, Joshua Fontenot, Michelle Plevel and Susan Lowe are expected to be heard in the next hearing in September.

UPDATE, May 6: The Nevada Real Estate Commission ruled that Sparks-based real estate broker Kyle Krch violated the law on multiple occasions while engaging in several short sale transactions.

The commission fined Krch $102,000 plus $10,128.67 in commission costs for 39 violations that were brought up by state investigators. Krch also was required to take 15 continuing education classes related to broker management, contracts and ethics.

Krch was levied the maximum fine of $10,000 each for eight violations. The total fine that could have been assessed against Krch for all 39 violations was $345,000.

Violations included Krch's failure to submit written disclosure to sellers about his financial interest in their properties. Krch also was part of an investment group that purchased some of the properties.

Krch's lawyer Matt Hipple argued that Nevada statute can be interpreted to allow for verbal disclosure, which Krch claims he made with clients. Norma Jean Opatik, one of the commissioners hearing the case, did not buy the explanation.

"To ignore (the regulations) is not a wise decision," Opatik said.

The commission also agreed with the Nevada Real Estate Division that Krch did not represent the best interests of the sellers and the lenders, and failed to adequately supervise his agents.

Opatik distinguished Krch's case from an earlier case in Las Vegas in January where staff with real estate firm Harcourts NV1 where cleared of wrongdoing in a short sale case brought forward by the state. Krch's case established a pattern, according to Opatik.

"Much has been said about our decision in January," Opatik said. "(The Harcourts decision) was based on one case presented."

"This time we have multiple cases," Opatik added.

Another Krch Realty staff member also was found by the commission to be in violation of state law while taking part in short sale transactions.

Real estate agent Michael Harding violated regulations by not making proper disclosure on two transactions, earning the maximum fine of $20,000. Harding also was found in violation of the law for not serving the best interests of the buyer.

The commission, however, determined that the Nevada Real Estate Division did not prove Harding acted unfairly with regard to the lender. Unlike the previous case where broker Krch was found to have harmed the interests of the lender, Harding only represented the buyer and was not liable for violations involving the lender, the commission ruled.

Overall, Harding was fined $23,000 plus $3,167 in commission costs. Harding also was required to take 15 total class credits covering ethics, contracts, agency issues and education about what every licensee should know.

ORIGINAL STORY

The Nevada real estate commission grilled a Sparks-based real estate broker on Tuesday afternoon in its first hearing in Carson City about questionable short sale practices.

Kyle Krch, broker for Krch Realty, was asked a wide a range of questions from his failure to provide written disclosures to some distressed sellers he represented about his financial interest in their property to the unorthodox practices of a real estate investment group he was involved in that bought short sale properties.

Krch also was asked about his practice of having distressed sellers sign waiver forms to withhold their property from being listed right away in the Northern Nevada Multiple Listing Service even after a listing contract is signed. This can allow a pre-arranged investor to gain an advantage over other buyers who don't see the property in the open market.

"Sometimes … we have a listing contract signed and still need to collect a tremendous amount of data," Krch said. "The waiver gives us time."

Norma Jean Opatik, a member of the real estate commission, questioned the rationale that Krch provided for his use of MLS waivers. Opatik also is a past MLS chairperson.

"The MLS developed the waiver for those people who say 'I want to list my property but need landscaping done and it will take me 3 weeks.'" Opatik said. "That's the purpose of the waiver, not collecting paperwork that should have been collected up front."

Krch was one of nine Northern Nevada real estate professionals summoned to a multi-day hearing in Carson City following an investigation by the state's Real Estate Division on short sales. The state investigation was triggered by a Reno Gazette-Journal report last year that documented short sale transactions where real estate agents made pre-arranged deals with investors and helped them acquire distressed properties far below market value by blocking other buyers in the open market. The agents also earned multiple commissions by representing the seller and the buyer in the same transaction, sometimes even earning a third or fourth commission on the property by also being involved in its resale. In addition to a state investigation, the RGJ report also caused the local real estate association to approach its national organization and ask for changes to beef up enforcement of its ethics policy.

Following the state investigation, the real estate division recommended disciplinary action for several Reno-area real estate agents and brokers, which triggered a hearing before the Nevada Real Estate Commission.

The first hearing was held in Las Vegas in January, where Steve O'Brien and Jason Lococo of Reno real estate firm Harcourts NV1 were cleared of wrongdoing by the commission. Also cleared was former Harcourts agent Hope Lewis. In the Las Vegas hearing, the real estate division contended that O'Brien and Lococo did not fairly serve the interest of the lenders by not getting the best price possible for the short sale property in the open market. The defense countered, however, that the lender and homeowner have an adversarial relationship. As such, they cannot represent both their interests and banks should be responsible for doing their own due diligence to make sure that the property is being sold for the best price possible.

"You could call what was going on potentially distasteful," said JD Decker, Nevada Real Estate Division administrator, at the time. "But (the commission decided) that it did not come down to being illegal or in violation of statute."

Several of the people summoned in the Tuesday hearing tried to use the Las Vegas ruling to have their own cases dismissed. The commission, however, denied them, allowing the real estate division's cases to move forward.

In addressing the complaint about Krch's failure to provide written disclosure to some clients about his financial interest in their property, his lawyer Matt Hippler argued that Nevada statute can be interpreted to allow for verbal disclosure, trumping the regulation for written disclosure that Krch was being charged under. Hippler also claims that the real estate division is trying to amend established law "on the back end" instead of having the legislature change laws related to short sales instead.

"They're trying to change rules of the industry on the fly," Hippler said. "Essentially, they're saying 'Well, we're not really comfortable with what this looks like and what this feels like and we want to throw it on the commission's lap."

Deputy Attorney General Keith Kizer, however, argued that the regulations make it quite clear that written disclosure was required. Kizer also disagreed with Hippler's interpretation of Nevada statute.